Lloyds bank sees profit ahead as it pays down loans

Lloyds Banking Group — which is 41% owned by the taxpayer — today said it is still well in line to return to profit this year after a good third quarter.

It revealed that it had started paying back loans from the Bank of England and other central banks faster than it needs to.

Chief executive Eric Daniels, who will step down next year, said: "This shows we have been very successful in managing our balance sheet and in issuing bonds. We are confident that we will deliver a good financial performance for the current financial year."

Lloyds, which made profits of £1.6 billion at the half-year stage, did not release many numbers with today's update but analysts reckoned that the third quarter had been the best so far this year.

They also applauded the speeding-up of repaying facilities provided by the Bank of England, US Federal Reserve and European Central Bank, mainly to HBOS, at the height of the credit crisis.

At its peak Lloyds borrowed £157 billion of such central bank backed funds. That dropped to £132 billion at the half-year and to about £112 billion by the end of September — representing some £7 billion more than Lloyds was contractually obliged to repay.

Joe Dickerson, Execution Noble analyst, said: "This is an unequivocal positive for the credit profile of Lloyds and should serve to bring down wholesale funding costs."

Lloyds has been able to replace state-backed cash through issuing its own bonds. It has now raised £27.5 billion so far this year against an earlier target of £20-£25 billion.

Daniels said Lloyds was on target to meet Government-imposed targets for lending for mortgages and businesses this year and had given mortgages to 35,000 first time buyers.

But he said overall demand for mortgages remains at very low levels with many customers choosing to pay back parts of their mortgages early in the fear that interest rates could start to rise.

Lloyds shares dropped 2.1p to 67.5p on worries about growing bad debts in Ireland and Australia despite lower write-offs in the UK.

HOW THE ACCOUNT STANDS

£20.3bn: Amount paid by taxpayer for Lloyds shares (73.6p a share average)£18.6bn: Current value (67.5p a share)£2.8bn: Fees and payments to Treasury£1.1bn: Current taxpayer profit£112bn: Outstanding loans backed by taxpayer and central banks